What happened?
The European stock markets took a short nosedive just before 10 a.m. yesterday morning. Investors were rocked by a short-lived crash that began in the Stockholm market. There, the OMX star index fell by as much as 8 percent in just five minutes, and then largely made up for the loss. But the wave of sales immediately continued towards Copenhagen and Oslo, followed by the other European capitals. The Bel20 also briefly lost 5 percent, only to recover afterwards.
What is the cause?
After a day of confusion, US banking group Citigroup announced late last night that one of its traders is behind the so-called ‘flash crash’. “This morning one of our traders made a mistake entering a trade,” the New York bank said. “Within minutes, the error was discovered and corrected.” Citigroup says it is in talks with governments and stock watchdogs to analyze the incident.
The mistake is said to have happened at Citigroup’s London office, where the trader likely entered a wrong sell order on the Stockholm Stock Exchange. The London stock exchange was closed for a public holiday. A number of other stock exchanges in the world also remained closed due to the holiday, so that little was traded, which further exacerbated the effect of the wrong order.
Stock exchange operator Nasdaq Stockholm said yesterday that it was probably not a technical error, nor was there a foreign system attack. “It is clear that the cause of the fall is a substantial transaction by a market player,” said a spokesperson for the exchange operator.
What is a ‘flash crash’?
A so-called ‘flash crash’ often involves a chain reaction, caused by one gigantic and in this case incorrect sell order. In stock market jargon, there is also talk of a ‘fat finger’ error, where a trader enters an incorrect number or a comma on the keyboard. Because the index then falls heavily, even more large sell orders are created, which amplifies the price declines.
The mood in the European markets was already negative due to the significant price losses on Wall Street last Friday. Technology companies in particular were under pressure after the plunge of more than 4 percent of the American tech indicator Nasdaq. Concerns about the economic slowdown in China due to the lockdowns, high inflation and rising interest rates also kept markets in their grip.
Has this happened before?
Yes. In May 2010, hundreds of billions of dollars in market value of US stocks went up in smoke in 20 minutes when a computer program accidentally started a sell-off. That so-called flash crash took place on the Nasdaq.
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